I have been “mistaken,” “misled,” “misrepresented,” and been “unaccountably in error,”
and am sorry if you have been offended

Tuesday, January 13, 2015

The 2014 Butter Scare

One
blogger that you should be following if you can read Japanese is Professor Hiroyuki Kishi, a former
METI official whose acute criticism of Japanese economic policy is detailed and
usually to the point. He doesn’t blog nearly often enough, and his latest post is dated
December 26, 2014, where he took up the butter shortage, beginning in summer
and widely reported in autumn, that threatened the production of Christmas
cakes among other things.

There,
he wonders why a butter shortage occurred although milk production had been down
only 2% year-on-year and the government had added two emergency butter import tranches
of 7000 tons (May ~) and 3000 tons (September ~), and places the blame squarely
on the government’s shoulders. First, he takes note of the fact that the
government has been pushing dairy farmers toward cheese production in recent
years. According to Kishi, in FY2014, the Ministry of Agriculture, Forestry and
Fisheries (MAFF) decided that it would install a permanent difference in subsidies
to producers for milk used for butter and for chees with the former at 12.80 yen/kilo
and 15.41 yen/kilo for the latter. He thinks that dairy farmers naturally
gravitated toward milk for cheese, creating a butter shortage. He cites the summer
increase in cheese production even as butter production was dropping. Second,
he blames government intervention. He believes that the government’s virtual
monopoly of butter imports creates inefficiencies that would be resolved by
allowing market forces to prevail.

Interesting
analysis, but could there be something more here than meets the eye? If
inefficient government intervention created a shortage, why didn’t it create a
glut with the 7000-ton and 3000-ton import tranches? My guess is that a lot of
hoarding went on.

Imagine
yourself going to the supermarket and noticing that there are fewer butter
sticks and patties available than usual. If you are a butter user, you might be
tempted to pick one up then and there, particularly if the one in your refrigerator
needs to be replaced pretty soon. This could have a snowballing effect,
clearing the shelves of butter until the shelves are replenished, first with
manufacturers’ stock, later with the additional government imports. But all is
not well even then. People, worried that the shortage could occur again, snap
up the butter as soon as they appear. Media reports could create a stampede,
turning what was initially a modest, temporary shortage into a crisis
situation. Imagine every household refrigerator holding one extra stick or
patty “just to be safe,” and you have a pretty large stock of butter that will
be around until the fears wears off. A one-off increase in the supply of butter
to match that stock, and a matching staggered decrease to be managed carefully.

Of
course letting market forces deal with the situation by liberalizing imports
could smooth out much of the fluctuation, which broadly considered, perhaps
falls within the second point of Kishi’s analysis.

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About Me

After graduation, Jun Okumura promptly entered what is now the Ministry of Economy, Trade and Industry and stayed in in its ecosystem most of his “adult” life. Along the way, he had pleasant stops in an assortment of Japanese quangos (Japangos?), overseas assignments and government agencies. After thirty years, though, it dawned on him that he had no aptitude whatsoever for administration and/or management. Armed with this epiphany, he went to the authorities and arranged an amicable separation; to come out, as it were. He is completely on his own IYKWIAS, but he and the METI folks remain “good friends.” He currently holds the titles of “visiting researcher” at the Meiji Institute for Global Affairs (no, that MIGA) and counselor at a risk analysis firm that dares not speak its name. This gives him plenty of time to blog or make money on his own. His bank account says that he does too much of the first, and insists that he do more of what he calls “intellectual odd jobs”. He wants to be paid to write fulltime, or better, talk—where the easy money is—but that distinction has largely escaped him. He really should not be referring to himself in the third person; he is not that famous.